Chinese Retail Sales Remain Strong Despite Slowing Economy
Retail Sales in China Defy Economic Slowdown
BEIJING — Despite signs of a slowing economy, retail sales in China continue to thrive.
In July, New York residents David and Susan Schwartz visited three Costco stores, known as warehouses, in Shanghai and Suzhou.
They were amazed to find that the foot traffic in these stores was around 7,000 people per day, double the average of stores in the U.S. of the same size.
David Schwartz said, “In China, we saw a constant stream of people from morning to evening, weekdays and weekends. There was no ebb and flow like in the U.S.”
This contrasts with Costco locations in the U.S. where foot traffic is busier on weekends than weekdays, according to Schwartz.
The Success of Foreign Brands in China
Costco is not the only foreign brand experiencing growth in China.
In August, premium skincare brand Malin+Goetz opened its first store in Shanghai. Coach parent company Tapestry announced plans to open 10 Kate Spade stores in mainland China by 2024.
Chris Reitermann, CEO of Ogilvy Asia Pacific and Greater China, believes that the premium market will continue to do well in China. However, targeting the middle class may prove challenging, as people may trade down.
The Growth of China’s Middle Class
The middle class in China is defined as households earning an annual income of more than 160,000 yuan ($21,950). According to McKinsey Global Institute, this income category has grown from 99 million to 138 million households between 2019 and 2021.
McKinsey predicts that another 71 million households could enter this higher income bracket by 2025. However, the majority of households in China still earn far less than the middle class income level.
Challenges Faced by Companies in China
Uncertainty in the Chinese economy has led companies to hold off on marketing campaigns, resulting in a decrease in media spending. China’s economic recovery from the pandemic has lost momentum, and consumer confidence has dropped.
“Even at the lower end of the spectrum, [China is going to have] 3% to 4% GDP growth over the next three years.”
Chris Reitermann
CEO, Ogilvy Asia Pacific and Greater China
Companies are urged to focus on long-term success in China rather than short-term gains. The declining property market has also added to the uncertainty.
Success of Costco in China
Costco opened its first warehouse in China in 2019 and has plans to open its sixth location soon. The warehouses stock a wide variety of products, including seafood, Chinese alcohol, and truffle soy sauce.
Susan Schwartz noted that Chinese consumers appreciate high-value products at great prices. Other companies such as Apple, Starbucks, and Tapestry have also reported revenue growth in China.
Despite economic challenges, Chris Reitermann believes that China will continue to have GDP growth of 3% to 4% over the next three years. However, businesses in China will need to adapt and focus on profitability rather than relying solely on growth.
